When Britain says it can't be done

 

Norway to unilaterally cancel
$180 million debt

Norway has called for deeper debt cancellation for the poorest countries, and has directly challenged countries like Britain which claim that unilateral debt cancellation by individual countries will not benefit poor countries.

"We will work to persuade other countries to also write off debt in addition to the debt relief provided for by multilateral agreements," said Hilde Frafjord Johnsen, Minister for Human Rights and Development. And she specifically cited Britain and Switzerland as targets of persuasion.

(full text of the minister’s statement)

Norway’s debt relief plan was put to parliament in May. It has the public support of parties representing a majority in parliament and is sure to be approved when it comes to a vote as part of the budget in December 1998.

The plan explicitly says that the present World Bank/IMF Initiative for the Heavily Indebted Poor Countries (HIPC) is inadequate, and that bilateral creditors should be willing to cancel up to 90% of the debt of the poorest countries, compared to 80% under HIPC.

But the real importance of the Norwegian plan is that, according to Development Minister Johnsen, "Norway is prepared to write off further debt (owed to Norway) in addition to, and on top of, the debt relief that has been negotiated internationally. The decision concerning such debt relief will be made when a reliable multilateral agreement has been reached."

In this way, Norway has beaten the "burden sharing" problem which Britain says makes unilateral cancellation pointless. Under the "burden sharing" procedure, debt is cancelled proportionately by all creditors until an agreed level is reached. Britain says this means any country that cancels extra debt simply reduces the amount that must be cancelled by others. Thus, if Britain cancels extra debt to Uganda, it is in effect giving aid to Germany and Japan and not Uganda, because other creditors have to cancel less debt.

The Norway solution is to promise to cancel all debt to Norway by severely and moderately indebted low income countries (SILICs and MILICs), but to only officially decide to do so after the debtor has gone through the HIPC Initiative or other international debt relief process. Thus the extra Norwegian debt cancellation cannot be counted in the burden sharing calculation, because it has not been officially pledged.

Minister Johnsen went further, and said that as Benin and Ghana were not going to receive debt relief under HIPC, Norway would "rapidly write off the old debt that Benin and Ghana have to Norway."

For Norway, as for Britain, most debts owed by poor countries are for export credits. "A large part of this debt is a consequence of the ship export campaign that was started in the 1970s. Norwegian companies have long since been compensated for their losses. By means of this plan, the government will now ease the burden of debt for developing countries," Johnsen said.

In all, Norway plans to write off US$ 250 million in debt to 22 countries, of which only $ 70 million will be part of HIPC and other international debt relief; $ 180 million will be extra unilateral cancellation.

"One of the conditions for debt relief is that it is carried out in such a way that it benefits the country concerned and its inhabitants, and not its creditors," Johnsen said.

For a full version of the debt plan, click here